Five provisions that need to be in your dealer vendor agreements
If you haven’t heard, CDK Global – a provider of software to large dealership groups all around the country – was recently hacked. Subsequently, they shut down their systems causing chaos among those within the automotive industry. As General Counsel for several stakeholders in the industry, news of this hack sent Lefkoff Law into hyperdrive. This can be prevented. In this article, we’ll outline the Five Provisions that need to be in your Dealer Vendor Agreements.
Though there are several lessons one can learn from this unfortunate event, we want to focus your attention on five important provisions you should be cognizant of in your vendor contracts or contractor agreements for your motor vehicle business. Regardless of the business you are in, these contract provisions apply to all.
Liability Limitations
The first to be aware of are Liability Limitations. These provisions do exactly what they sound like – they limit the liability of a breaching party. Liability limitations are important, particularly, in the event of a breach of contract or warranty, as they would establish the limits to how liable the breaching party can be. In the case of CDK Global, if there is a provision in the contract that says they are not liable beyond the amount their customer has paid to them in the last 6 months, then if one were to sue CDK that sum would be the maximum reward possible. You can see how that poses a problem.
Identify and understand the duties
The second contract element to be conscious of is making sure you identify and understand the duties of the parties to the contract. It’s important to understand exactly what services or products the contracting party is agreeing to provide. Most contracts will clearly illustrate the amount the paying party is obligated to pay; however, what are they to receive in exchange? You should be certain that you can clearly identify the services and products agreed upon.
Indemnification and Defense
The third provision to be aware of is called Indemnification and Defense. This outlines who is responsible to whom in the event a problem were to arise as a result of services or products being provided. Is one party responsible to the other for the consequences occurring as a result of their breach of the agreement? What if the non-breaching party is sued by a third-party due to the actions of the other party to the contract? For example, let’s say your DMS vendor is hacked and your customer’s social security numbers are stolen. If your customers sue you, will the DMS company indemnify you by covering the damages? Will they pay your defense to hire an attorney to defend you?
Termination
Termination is the fourth provision to familiarize oneself with. The termination provision addresses how and under what circumstances the parties can terminate an agreement. In the CDK Global scenario, does this hack and/or the their subsequent discontinuance of service now provide you the opportunity to do so under your termination provision?
Safeguards
The last provision we’ll discuss today, and perhaps the most important, is Safeguards. These are not often explored in the contract, but if sensitive information is being exchanged, we want to know what the receiver of the information is doing to protect it. It is common for most software programs to store private customer data, nonpublic private information that should be covered by the FTC Safeguards Rule, and other information like social security numbers, bank records, etc. When considering a new provider, it’s always prudent to inquire into how they plan to safeguard your data and to understand whether they are responsible in the unfortunate event of a breach, or will their safeguard provision coupled with their liability limitation suggest they are not responsible?
Next time you review your vendor agreements, remember to search for and understand these five provisions. Remember, Lefkoff Law is in your corner and a phone call away.
Lefkoff Law is a law firm based out of Sandy Springs, Georgia. We focus our representation on providing general counsel to car companies around the state of Georgia.
It is important to have a knowledgeable law firm. We’re more interested in seeing your business thrive than pushing clients through our doors. We provide clients with proactive strategies to help them thrive while navigating tricky legal situations. Schedule your strategy meeting with us by calling 404 482.2228. Join The Driveway, our monthly legal membership program that provides educational resources specifically for dealers. Sign-up at: https://www.lefkofflaw.com/driveway
